Posted
by
timothy
on Sunday June 26, 2011 @01:54PM
from the see-subclause-in-above-subparagraph-g-to-wit dept.

cratermoon writes with a story of interest to anyone interested in working at a start-up, or compensated even partly in company stock: "Former Skype guy Yee Lee finds out that for people working at companies controlled by private equity firm Silver Lake, 'vested' doesn't mean what you think it means, and gets no money from the stock options he thought he could exercise. 'Skype spokesman Brian O'Shaughnessy said, "You've got to be in it to win it. The company chose to include that clause in the contract in order to retain the best and the brightest people to build great products. This individual chose to leave, therefore he doesn't get that benefit."' Fortune also has the story." Some of the commentary on the confusing language surrounding the stock grant says the company was doing nothing out of the ordinary, but it seems that's because opaque language is the norm.

You are the employee and you cost money. The profit is already money and therefor that is what is protected. If you want to assure you will be protected, read what you sign. Everyone wants to keep their slice of the pie. Every slice costs money. And even worse, lawyers will be making a piece from each part of the action.

I am the employee who generates value for your company. If your staff isn't generating more money than it costs, then either you're a poor manager, or your business plan has already accounted for that and hopes to recoup the losses later. If you want assured profits, then you need to compensate the employees who generate the wealth.

Yes, you steer the ship, but the employees are the engine, the sails, the hull, and the bilge pump. Without us, you'd be steering a canoe instead of a battleship. Take care o

Or perhaps we should make any verbal explanation given to you also legally binding.

That would be awesome, but salesmen would throw a fit, because they often rely on being legally allowed to say one thing while writing the opposite on paper for you to sign.

Are you absolutely *sure* that they're not legally binding? I know that in the UK, verbal contracts are legally binding- the question is (a) what the situation is in the US and (b) how far such statements would be considered as counting towards a perceived contract (regardless of back-covering disclaimers the company might try to shove in their written contract/agreement, etc.).

I find it hard to believe that such verbal statements would have *no* legal weight whatsoever if they could b

The 11-page stock option agreement he signed looked to him like boiler plate and suggested a typical "one-year cliff" at which point 25 percent of his four-year option grant would vest. The only mention that the company had the right to buy if he left in less than five years came in a single sentence toward the end of the document that referred him to yet another document, which he never bothered to read.

It's easy to tell someone "be sure to completely read what you sign", until the day someone sets a 45 page or otherwise excessive amount of fine print in front of you, summarizes it, and asks you to sign it. Try buying a house. If you're really going to read the entire stack of morgage papers, you're going to need a few days. And there's no chance in hell you're going to catch anything shady like the above unless you have a lawyer there the entire time, and you can bet that's going to be an expensive few days.

This one pulled a double-shaft on him... the offending bit of legalese wasn't even in the document he signed. It was something like a "this agreement also includes stipulations covered in a different document". He couldn't possibly have caught that even with a lawyer reading over his shoulder, without taking a break and doing research and chasing down the additional paperwork (that he wasn't even provided with at the time of signing) that it was binding him to. That's about as far into "dirty pool" as fine print can get.

It may cost you, but I suggest anyone signing this detailed a contract go to a lawyer. Of course, this is likely non-negotiable, so you'll either accept the contract in front of you or say "Thanks, but no thanks" and go to the next job where it's likely you'll be faced with the variation on a theme.

If you're hiring someone, and he says "let me call my lawyer", don't you get a knot in your stomach, like maybe this guy likes to sue a lot? Who calls their lawyer over an ordinary job contract (I've actually never signed a job contract; I've just been given confirmation of what I'll receive in return for my work)? Maybe he's planning on suing this company once he's hired? Maybe he's planning on suing this company for not hiring him? Maybe he's planning to slip and fall in the meeting room?

If you're hiring someone, and he says "let me call my lawyer", don't you get a knot in your stomach, like maybe this guy likes to sue a lot? Who calls their lawyer over an ordinary job contract (I've actually never signed a job contract; I've just been given confirmation of what I'll receive in return for my work)? Maybe he's planning on suing this company once he's hired? Maybe he's planning on suing this company for not hiring him? Maybe he's planning to slip and fall in the meeting room?

That's as may be, but if this sort of legalese becomes the norm, then a recruit's defense against that legalese should become the norm as well. Put another way, if you as an employer are going to harass me with contracts that are too unwieldy for me to reasonably be expected to read and understand in a short amount of time, then you should expect me to counter with lawyers who will look out for my best interests.

Of course, in the end, it's still the lawyers who come out ahead in all of this mess. I'm imagin

If you're hiring someone, and he says "let me call my lawyer", don't you get a knot in your stomach, like maybe this guy likes to sue a lot? Who calls their lawyer over an ordinary job contract (I've actually never signed a job contract; I've just been given confirmation of what I'll receive in return for my work)? Maybe he's planning on suing this company once he's hired? Maybe he's planning on suing this company for not hiring him? Maybe he's planning to slip and fall in the meeting room?

Huh, now that you mention this, perhaps it explains more why my insurance company dropped me than everything they said to my face. Basically, I had a crash, and they gave me a form to sign which would give them limited power of attorney, but would indemnify them for all acts they took while acting as my power of attorney. I crossed it out and initialed the cross out. When the person asked me if I were allowed to do that, I noted that I wasn't going to give them carte blanche to commit fraud in my name, and

See, here's the problem with the Skype arrangement. It talks about vestment in stock options, which is a pretty simple term most people who would be considering working at least in part for options can easily understand. Then in exactly a single sentence, mentions a different document, not presented with the contract, which document basically says, "Know that stuff about vestment? Just kidding, we take it back."

So on the surface it looks like the kind of contract a lay person can understand, and subtly u

For things like buying a house, you'd be an idiot not to have an attorney go through it. The amount of money that you can lose if there's something obnoxious in there can very easily make it a worthwhile investment. But unfortunately, for most other contracts there isn't such a clear cut reason to have an attorney review the materials. I don't think those people a few years ago who wound up being billed for thousands of dollars for cell phone charges were expecting that given that the companies don't inform

Actually, if you're buying a house like most people, which is via your local association of Realtor's contract and Fannie Mae/Freddie Mac mortgage paperwork, there is probably no point in having an attorney review it. Those documents have been reviewed by more attorneys than you could ever count, and none of the terms are negotiable (with your lender, anyhow).

Now, it may still be worth a few hundred bucks to have an attorney attend closing with you, especially if you are an inexperienced buyer, to make sure nobody pulls anything shady with you. But you can be sure that the attorney is not going to read your off-the-shelf documents line by line.

Come to think of it, a banker that I've used for a few transactions tells a funny story about a buyer who brought an inexperienced attorney to closing. The attorney started going through the standard mortgage docs with a fine-toothed comb and started crossing stuff out, rewriting clauses, etc. After 20 minutes of this nonsense, the banker asked the attorney if she could speak with him privately.

They left the room and she said, and I'm paraphrasing here, "These terms are set by Fannie Mae and are not negotiable. If you don't cut this shit out, the bank will simply decline to fund the loan, and your client will lose his interest rate lock and potentially lose the house. I suggest that you advise your client to sign the agreements without modification, or you are going to become an extremely unpopular attorney with our client." Yeah, so the attorney changed his mind right quick about trying to negotiate the time-tested, court-tested docs.

It may cost you, but I suggest anyone signing this detailed a contract go to a lawyer. Of course, this is likely non-negotiable, so you'll either accept the contract in front of you or say "Thanks, but no thanks" and go to the next job where it's likely you'll be faced with the variation on a theme.

I've never run into a job related contract that is non-negotiable - whether it's salary, benefits, or other details. The contract is the first offer - you need o decide if it's acceptable or not. I've done that and in most cases we come to an agreement on what works for both sides. If we run into an issue that can't be resolved the i simply walk away. It's better to do that up front than wind up suing.

If you're really going to read the entire stack of morgage papers, you're going to need a few days

Heaven forbid someone take a few days to read and understand the terms of such a large loan and purchase. It's not like people spend a large fraction of their lives repaying a mortgage. It's not like people might have to deal with the mortgage rate changing on them a few years down the line.

And there's no chance in hell you're going to catch anything shady like the above unless you have a lawyer there the entire time, and you can bet that's going to be an expensive few days.

We're not talking about buying a laptop, we are talking about buying a house. Yes, I would want to have a lawyer look over the contract before I agree to repay hundreds of thousands of dollars to the bank.

the offending bit of legalese wasn't even in the document he signed

So he should have either asked for the document that the contract referenced.

He couldn't possibly have caught that

Yes he could have, if he had actually read what he was signing. He did not read it, he just assumed that he could work at Skype for a year or so and then jump ship, like he had done nine times beforehand. Why are we feeling sorry for this guy?

When I bought my house, I read through everything, and there were three places where I requested changes to the contracts. In each case, they made the change on the spot. When I was hired for one job, I said the non-compete agreement was insane, pointed out where, and the boss tore it up on the spot. Once I was hired, he asked me to help re-write it to something more reasonable. If you don't read before signing, you're still responsible.

Oh, wait, that kind of training takes 8 years and $100,000 dollars. People actually *aren't* trained to read and interpret legal papers, that might be why corporations hire lawyers to create contracts in which important legal information is hidden on other papers not made available at the time of the signing of the contract, completely ignoring the concept documented under the Uniform Commercial Code saying that a contract involves coming to a 'meeting of the minds'.

Sorry - I'd have to say this should be brought to a court. A contract does involve a meeting of the minds, and the company *knew* this addenda was entirely relevant to that meeting of the minds and took positive steps to hide that fact.

"In criminal law, a fraud [wikipedia.org] is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation."

As a potential member of a jury pool, does putting such relevant information in a document not available at the time of the signing of the contract strike you as being either accidental or forthcoming?

I purchased a house. I read everything I was asked to sign. Yes it took time, but the responsibility of understanding what you sign is on you and not the contract issuer. "I didn't read it" is not a defense that will often stand up in court, so actuly spending a little time reading is your best bet. And given the amount of money involved in a job or house, why wouldn't you be willing to spend the time?

Same here. I don't think it took more than half a day to read everything. The contract of sale was only 3 pages, the mortgage agreement was 4. The leasehold agreement was the longest, but since I was also buying the freehold, making the leasehold agreement an agreement between me and myself, it was somewhat moot (yes, British law is weird). I read it anyway though, just in case.

When you're borrowing an amount of money that's measured in multiples of your average income, and buying something that costs even more, you'd be absolutely insane to sign without reading it in detail.

Actually, the contract my publisher uses for books is a bit more complex than any of the bits of paperwork that I had to sign for my house, and I've never received one of those without sending back a load of complaints about it and getting it amended. I'd expect to do something similar with any contract of employment.

If I were hiring a CxO, I'd put a clause in the middle of their contract saying that they could be fired for any reason within the first 10 days and would have to pay a $100,000 fee to cover the costs of hiring a replacement if this clause were invoked. If they didn't object to this, I'd fire them on the first day - I wouldn't want someone who didn't read contracts and understand the implications of the terms in a senior management position.

If I were hiring a CxO, I'd put a clause in the middle of their contract saying that they could be fired for any reason within the first 10 days and would have to pay a $100,000 fee to cover the costs of hiring a replacement if this clause were invoked. If they didn't object to this, I'd fire them on the first day - I wouldn't want someone who didn't read contracts and understand the implications of the terms in a senior management position.

That'd be a pretty good way to scare off any future CXO candidates of any quality.

That's true in contract law, but "intentionally deception for gain" is known as fraud. That's actionable civilly as well as criminally. If a large number of employees signed this contract and left, you're looking at a really bad situation for Skype's executives.

To me it depends exactly what the nature of the agreement is. For example, I don't read my iTunes agreements because they're:

a) 100+ pages long on my iPhoneb) Standard across a million usersc) Apple won't negotiate, it's a take it or leave itd) If I don't agree, I lose access to the store - I'm already investede) It's small money anyway

In this case I rely on the fact that if there's something really nasty in there, then a) the media will alert me and if b) they're of the "and your firstborn" variety the cou

I stopped including stock options into what I consider adequate compensation for a job a long time ago. I look at the dollar salary or hourly contractor pay as the only factor in judging compensation. Stock options are a nice to have, but in the end I never count on them paying off. I've been around when stocks fall below the price they were when I started somewhere (companies can gain market share but fickle markets do funny things... e.g. they've maxed out the market so can't grow any more but even though they are making the same profit year over year we don't think they are worth as much since they can't grow as fast as before.... etc etc etc) or when companies want to put clauses like this into the package. So I don't let them wow me with phrases like, "but we offer great stock options" when talking to the recruiters. I prefer the "show me the money" conversation. Now-a-days I believe "stock options" are just a way to pay you less and to try to rope the naive into staying at shitty companies.

Stock options are a way to pay you without having the money come out of operations. Usually, the options are covered by stock that the board has authorized the company to create for that purpose. It costs the company nothing for you to exercise the option, the cost comes in the dilution of the stock. In other words, the shareholders end up paying the bill due to lower share value. This isn't always the case. Sometimes the company will buy back stock to cover the options, but it isn't very common (thoug

"Confusing" language often means open to interpretation (ie, ambiguous). Anyone who thinks they may have a claim because the language in their contract can be read in multiple ways is probably well-advised to talk to a lawyer and sue.

I am agnostic on the claim. But if a contract is, in fact, ambiguous, then I can see how the meeting of the minds at the time of the signing of the contract actually prevails over the language. I am not a lawyer nor do I know the person making the claim.

Words are rhymed with two-word phrases, but the second is omitted. For example, thief becomes tea leaf, so calling someone a tea means that they are a thief. In this case, the phrase is 'septic tank', which rhymes with 'yank' and means someone from the USA (even someone from the south - sorry!), so the grandparent was asking if the person who's immediate reaction was to consult a lawyer and sue was American.

I worked for a startup, was given stock options, then the company went public. After about a month my options were worth about $1M on paper but I couldn't exercise them because that would have diluted the company founder's share value as they busily unloaded their shares. In the end I wrote a check for $24k to the IRS and ended up with nearly worthless options while the company founders cashed in and took their millions off to another startup to repeat the process.

Even in cases like Microsoft where the management team isn't trying to screw people over it can still happen. I remember a few years back they stopped granting options because they had so many options outstanding and most of them could never be exercised due to the strike price.

And really companies shouldn't be granting options, the fewer options there are the better. If a company wants to tie an employees benefits to the stock price, just give them actual shares in the company. Options themselves just muddy up the waters and make it much harder to figure out what the company is really worth.

YES! Let this be a warning to all techs and other employees who are offered shares in lieu of pay or other benefits. The lawyers and private equity guys will screw you over. Actually, its worse now than in the past because fewer deals ever go fully public due to the Sarbanes Oxley reporting regulations and bullcrap; who needs it? What VC would want to deal with all of that when the company can instead be sold to a private equity firm, a hedge fund perhaps, with most of the profit still intact? If nothing else, remember what they say in Hollywood: "a share of the net profits is a share of nothing." cash money on the barrelhead...accept no substitutes.

If you are given options that have a market value of $X, the IRS considers you to have gotten taxable income of $X, even if you can't currently sell them. Even though they only take tax payments in cash and didn't *get* any cash. Yes, a lot of people have been very thoroughly screwed by this.

Umm, what part of "I worked for a startup, was given stock options" did you not understand? The FOUNDERS did exactly what any normal company would do - hire people to do WORK for COMPENSATION. Of which part of that was apparently detrimental stock options - stock options that are meant to reward the WORKERS of THEIR hard work building the company. I've worked both sides of the "My company" and "someone else's company" - the concept of ownership and compensation really isn't that hard to understand.

And why would you pay taxes on _OPTIONS_ ?? If you exercised them, and sold the resulting shares, and paid taxes on the gains from THOSE, then you still came out ahead.

Troll.

Because an option has a value. It's the right to indulge in pricing time travel -- to buy something in the future at today's price, but to only do so if it works out to your advantage. That's a pretty handy thing, and clearly has value. Who wouldn't want the right (but not the obligation) to buy oil, wheat or MSFT three years from now at today's price. Nobody's gonna give you any of those rights for free, and that's because the right has a tangible value *now*.

It's really not that complicated to know what is the right thing to do here. Harsh terms in a contract, fine. The person you're negotiating with can take it or leave it. Opaque and intentionally misleading terms, not okay.

To repeat: nothing wrong with both parties in a transaction negotiating vigorously on their own behalf. When the one party, which has the support of teams of lawyers skilled in writing opaque legal sourcecode that no ordinary person can read, uses that to their advantage, it may be legal, but it's wrong.

Hate to tell you this, since you're apparently not part the group, but for top quality people it's almost better than the 90's. Good silicon valley companies understand that quality matters, and they will pay for it and actively recruit it. There is more demand than supply.

I was in a startup, had a ton of stock options. CEO sold the company, but just before doing so... he granted himself a million options at a penny strike price. This diluted the shares so that anyone else made $0 because they were worth less than the strike price everyone else had. This was all after working there for years and putting in a lot of OT, and creating a product that gave the company real value it would not have had otherwise.

True story. I opt for cash now, and will take options if they give them but do not consider them as part of my compensation no matter how much my bosses try to give them to me in lieu of increases.

True story. I opt for cash now, and will take options if they give them but do not consider them as part of my compensation no matter how much my bosses try to give them to me in lieu of increases.

Experience is often the best (and harshest) teacher isn't it? We could all learn from your experience when negotiating our compensation. Cash is king. Accept options if they are offered, but never in lieu of what you believe is fair "cash on the barrelhead" compensation for your valuable and skilled labor. Assume that options are going to be worthless, or nearly so, and discount their value appropriately. Thank you for sharing your experience.

The only mention that the company had the right to buy if he left in less than five years came in a single sentence toward the end of the document that referred him to yet another document, which he never bothered to read.

For someone who works the startup circuit jumping from job to job every year, you would think that reading your employment contract would be a no brainer.

"I would have never gone to work there had I known," [Lee] says.

In other words, he never had any intention of staying with the company. He was only there for the minimum amount of time necessary for some options to vest, then he planned to cash in any windfall and move on to the next startup.
Sorry, but I have no sympathy for him.

In other words, he never had any intention of staying with the company. He was only there for the minimum amount of time necessary for some options to vest, then he planned to cash in any windfall and move on to the next startup.Sorry, but I have no sympathy for him.

And the company had no intention of keeping him around; they were only going to pay him for as long as he was useful, at which point he would be fired and they would move on to the next tech guy.

He is not taking Skype's side; this is not a "us or them" issue. The point is that we have no reason to feel any sympathy for this particular employee, who did not bother to read the terms of the contract that he signed, and jumped ship at nine other companies before signing up to work for Skype. He is whining about how their contract included a clause that the other contracts did not, and how it is unfair for him to be expected to actually read what he signed.

In other words, he never had any intention of staying with the company. He was only there for the minimum amount of time necessary for some options to vest, then he planned to cash in any windfall and move on to the next startup.
Sorry, but I have no sympathy for him.

You know what, if you want me to work somewhere for at least 3 years, why don't you just make the minimum vesting time 3 years? Be it at Skype, Chotchkie's or wherever.

That's a common practice with 401k, and from what I'm reading, this sounds a lot more like fraud than any sort of legitimate method of retaining employees. They'll likely get away with it due to it technically being in the contract, but I'll continue to avoid Skype whenever I can.

Companies should of course be free to offer compensation incentives on terms that fit their business needs. It's best for everyone if the incentives are expressed in plain language up front, so nobody feels tricked or taken advantage of later.

Indeed, that single quote in the context of the situation has told me enough about Skype to prevent me from even thinking about ever working there in the future.

Making it clear that you will screw over employees who will not stay with you indefinitely since you are out to "win" is not only a horrible attitude towards life, it isn't even a good way to attract "the best and the brightest people to build great products" because most such people get bored working on the same products for a few years and will wa

That's the whole point ain't it? They're not making it clear at all, in fact they are tricking people into thinking that you can leave even after one year and cash out 25% of your options, when in reality you can't cash any until one year after you're fully vested.

The entire language about 25% vesting per year has no other purpose being there than to con people.

Indeed, options grants are supposed to be there to align the interests of the employee with the interests of the business, especially during the early stages when the business doesn't have enough cashflow to hire employees otherwise. If they want to retain employees with options, that's their right to do so, but they shouldn't be claiming that the options are vested if they can take them back in this fashion.

Personally, anybody that's working for options is a sucker. Now, if the options are on top of a dece

What strikes me as odd in that astonishing comment is that, without the stock option (which was instrumental in keeping those same brilliant people employed at that company), what else is there to "win"? The paycheck, which everyone can easily get from any company, or only the shaft which they are giving to their loyal employees? In fact, thanks to this dick move, does anyone believe that working for skype, or any company which private equity firm Silver Lake comes close to, is now something to dream about? Obviously not. They just demonstrated that skype managers are filled with contempt regarding their employees and that private equity firm Silver Lake is there just to screw even their mothers if it makes them a penny richer.

Another thing that strikes me as odd is that, according to the public statement, one of the reasons they did that is to stop employees from leaving their job. This is terribly insulting, even to the most hardcore neoliberal capitalist out there. This is sociopathy. They are actually stealing their employees income with the expectation that if they are poor enough they will be forced to stay in a job they hate because, being so poorly paid, if they quit their job they will face the risk of bankruptcy. Talk about grade-A psychopaths.

With Skype in particular, no only do they shaft their employees, but what about all the company executives that were fired shortly before the Microsoft acquisition so that they didn't need to get paid any bonuses on the sale of the company. Talk about grade-A psychopaths indeed.

I worked for a company that used another means to force employees to stay. They paid 25% of your income as bonus. Every quarter, your bonus was as regular as clockwork, except they would vary it by a dollar or two, probably because it would be legally considered part of the paycheck if they paid you the same amount. The hook was that they paid it once a quarter. This meant you couldn't count it as income, so you couldn't qualify for the home loans, or other things that you might have if it was all salary. Also, since it was bonus, apparently most lamebrain accountants think that means you need to withhold taxes at the single white rich dude percentage, which means that 40% of the dollars that you earn on January 1st of this year won't be available for your use for another 18 months. But the final coffin nail was that if you quit, at any time, you could guarantee that they weren't going to pay you your bonus for the quarter, so at least for your last quarter you ended up working for 75% of industry standard wage.
The owners of the company sold out to a large corporation for a huge sum of money, and didn't bother to negotiate any kind of retention bonuses for the employees. In fact, everyone had to redo the paperwork as if they were just starting with a new company, vested profit sharing was lost, vacation days were set back to zero.
The company was built on the labor of hundreds of employees who put in many, many hours of overtime with the promise of being rewarded with a piece of the pie when the company became profitable, but it was all a lie.
My advice, tell them thank you for the generous stock options and other benefits, value them at zero (because that is what they are worth) and ask for whatever compensation you are desiring all in salary.

I'd say at least half the companies I've received options from had clauses just like this. It may not be par for the course with private venture-funded companies, but it sure is close.

You should always assume that options or common shares of private companies are going to be worthless to you. Never include them in your compensation evaluation. Even if you are in a company that lets you keep options without buyback if you leave, you still have common stock and they can play games and absorb the equity event's value entirely or almost entirely in the preferred shares. Or they can recapitalize the company prior to acquisition, re-issue stock to existing employees and investors and cut the rest out.

Making money off an equity event in a private company is like winning the lottery. Pretty nice if it happens, but you're not being rational about it if you think you're going to win just because you played.

It seems a large number of people here think that it is, though. Idiocy, or trolls. Do people really have so little sympathy? Contracts are intended to be a fair, bindings agreement between two parties. There are countless examples of unfair or weasel worded contracts failing in court, but apparently that would be news to some. What about loan sharks? What if someone snuck in a paragraph of mind bending legalize which amounted to "we can kill you"?

Oh, of course, they should have read the contract, and in case it was too confusing, they should have hired a really expensive lawyer to read it for them.

Bullshit. While I have diminished sympathy for Lee for not double and triple checking his termination clause, I do not have none. I also suspect, as pointed out in another comment here [slashdot.org], that Skype should be liable for a lot of taxes by effectively buying back his options for nothing rather than their grant price. This probably still represents a net win for Skype, but at least then it's not "free" for them to exercise this clause.

In any case, it's still a particularly nasty thing for Skype to have done. Options generally have a "30 day" clause so you're not screwed in case of termination. This is supposed to add potential value to the options: you don't constantly run the risk of losing them all at the whim of the company. Skype effectively has a termination clause which takes away all your options any time they want. The difference is huge: I currently work on the assumption that my options are "safe" and I don't have to worry about them vs termination. My employer has written their options clauses to effectively say "we cannot be a dick - we are bound to allow you a grace period". Skype didn't. Their employees must treat options as directly bound to their employment, and if they're working under an "at will" contract, they can be gone in an instant. Skype took away a vast amount of value in their options due to the buy-back clause.

Don't ever work for stock options. It's okay to get some as a bonus as part of a compensation package, but basically you don't have control over options and no rights. If you work for equity in lieu of a wage, then you want stock, not options. If you leave the company there are a million ways for them to screw you over, leaving you without compensation for the months or years you invested. You own nothing. It's just plain idiotic to accept stock options as your primary compensation. (And founders who offer it are either clueless or try to rip you off. Regardless, RUN don't walk.)

Next time read the article, this has nothing to do with the difference between stock options and stocks. It has everything to do with the difference in the stock option contracts between companies.

Specifically, the issue is that normally stock options once vested (ie: you can exercise them) do not expire after an employee leaves a company. In this case they did and the language of the contract did not at all make that clear.

Specifically, the issue is that normally stock options once vested (ie: you can exercise them) do not expire after an employee leaves a company. In this case they did and the language of the contract did not at all make that clear.

Perhaps you should read the article again as well. The options did not expire. Lee was eligible to purchase them if he wanted to. The issue was that the contract also included a clause that would let the company buy back the stock purchased using those options at the exercise price if they so desired. The company indicated in a letter to Lee that they would do so. The net effect would be $0 gained for Lee and possible tax implications where he might even lose money if he were to move forward.

When you exercise options, you have a tax obligation between your strike price and the current price of the company. So if the option is at $1/share and the current price is $100 a share, he owes tax on $99 a share. Now, if he has a side agreement that he has to sell them at exercise price, he has to sell them at $1 a share, enabling him to take a loss as soon as the actual sale goes through.

This sort of confusion was really big during the.com boom/bust. People would exercise options to get a lot of sto

You buy a bunch of shares for $1 and sell the same number for $1 the same day, and you could end up owing millions of dollars in taxes.

If the "real" share price were $100 and you had options at $1, then you made $99 in taxable income off that option. That's taxed as earned income because it was a benefit of a salaried job. Then you take a capital loss of $99 on each share. Capital gains (and losses) are taxed at a lower rate to help shield the rich from those nasty taxes we burden their lives with. So

No, according to TFA the terms of the options were spelled out in a document that the guy had not read. Why am I supposed to feel sorry for someone who failed to read and understand the terms of the contract that he signed? Just because some companies offer options contracts that work in the manner you expect does not mean that every company does.

TFS makes it seem as though this guy was supposed to receive stock but did not. That is not true. The guy received options, under specific terms which he ne

Something tells me, if I were to ask you to read that document, you would not understand it yourself. In all likelihood, your lawyer would not have advised you about the possible implications of that clause since it is simply something that is not done.

People working for me have left to go to Google several times in the past, we had one black week once where 6 guys left within days of each other, all heading for Google. Not all of them are with that company anymore, and I have heard tell of the offers they received. $120k in stock options granted the first day, with a relatively short vesting period (I think it was about a year, but can't remember exactly).

This is the way things are supposed to work in Silicon Valley. I am never keen on options, I was granted a good number of them in the 90s and saw a lot of value vanish overnight when the bubble burst. But you should be able to lose value based on performance of the market, but an option is an option. It does not make sense that you are contributing to the growth of the company based on this compensation, and that it can be stripped from you.

Buyback clauses like this are almost certainly non-enforceable, especially since the employee has to pay taxes on the options during the time of his / her employment (at least in California). It would be like saying that the company has the right to take back your paycheck, they are measured as compensation and should rightfully belong to the employee without additional considerations.

I have a strong feeling this is not going to stand and we will be hearing about this matter for a long time.

>>The ACLU, for instance, is a Libertarian organization by definition.

Unless, you know, it's about a Valedictorian trying to throw props out to their deity of choice during a graduation ceremony, or a city government giving a cheap lease to religious charitable groups or the Boy Scouts.

Their definitions of freedom and liberty doesn't seem to encompass those concepts.

On the contrary. A local government is free to give out a cheap lease to a religious charitable group. They're not free to only do so for the charities they deem "proper," and charge double-rent to others to drive them out of town.

Just because some companies offer options contracts that work in the manner you expect does not mean that every company does.

Because redefining commonly understood words - and making you hunt down those definitions with no reason to suspect they've changed - Counts as nothing short of a "lucky he didn't go postal" level of sleaziness.

I want to pay you a million dollars a year to work for me. See my non-attached 300 pages of fine print for the definition of "dollar".

The article isn't about feeling sorry for him. It's about being aware that this has happened so that others potentially impacted by similar terms can evaluate their positions. Something like a sign on the beach that reads "Some swimmers recently eaten by sharks."

Huh? I thought the whole stock option craze died out with the tech boom/bust. When I was at Intel, they used to issue options, but they stopped when that new tax law came out regarding options, and instead they starting issuing "restricted stock units", which was basically actual shares of stock, with strings attached (they don't vest until you've been there two years after being awarded them).

I don't know what other companies have been doing, but I had assumed that everyone gave up on the stock option si

No, it's a complete sham. However, now that we've seen how the Skype employees have been screwed over, if you're looking for a job and get an offer that includes some options, how do you know it doesn't have the same clause in small print somewhere? I don't know about everyone else, but I am NOT going to read through 50+ pages of legalese and hire an attorney to read it all, every time some companies offers me a job. I'm just going to assume the options are worthless, and probably in my mind assign them

Congratulations on showing the exact opposite of what you meant, specifically that the language used by Skype is too confusing to understand.

The letter, specifically the third paragraph, says that he can only exercise his options at the grant price. In other words he will make $0 on it and have to pay taxes despite that. So he has 90 days in which he can do nothing of value with his options.